Before trusts existed and before small railroads were united into large systems the few banking houses of magnitude which existed in Wall Street had engaged in merchant banking, for the industries and railroads had not been large enough to attract their attention. These small industries and railroads were controlled by their owners, and their capital requirements were supplied largely in the localities in which they were situated. But as railroads and industries were consolidated it was found necessary to apply to the larger New York banking firms to supply the funds. These bankers had European connections as well as close affiliations with the big national banks and life insurance companies, and were able not only to furnish the needed capital but also undertook to market the securities of the newly formed combinations.
Thus a few banking houses, of which J. P. Morgan & Co. is the chief example, became in a way responsible for these new creations and naturally assumed charge not only of their finances, but to some extent of their other affairs. Thus the headquarters of the trusts and railroads gradually moved to New York. In the treasuries of these companies were vast sums of money to be banked, and it was inevitable that most of it should be placed in New York banks. The average daily balance of the United States Steel Corporation is about $75,000,000 and the American Tobacco Company has perhaps $20,000,000. There is also the Standard Oil Company, whose balance is perhaps as large.
These few financial groups, J. P. Morgan & Co., Kuhn, Loeb & Co., and the capitalists identified with the National City Bank and the First National Bank, along with a few others, are primarily in the business of selling securities and loaning money upon them. In fact they may be described as the great security issuing houses. Such influence as their members or directors may exert over railroad and other corporations is largely due to their ability to dispose of securities and to give these securities the stamp of soundness and conservatism. Here it may be added that men like J. P. Morgan would not be directors in so many corporations if their advice and assistance were not eagerly sought.
In the small village a small group of men own the bank, the coal yard, the ice-plant, the trolley line, the gas plant, and the little factories. Every day of the year these men, in their different capacities, have to trade with themselves in the purchase of supplies, etc., for their different companies, one from another. No one thinks of accusing them of double dealing, and yet the situation differs not a whit from the vast system of interlocking bank and corporate directors in New York except in degree and in fact, which, however, is vital, that the New York system affects the whole commonwealth whereas the business convolutions of Deacon Jones of Jones' Corners do not.
Now it must not be supposed that bankers such as Mr. Morgan and his partners are usually large owners in the companies they influence or even control. Often they do not own 15 per cent. of the stock of the banks they dominate. Often they become directors with but a few shares of qualifying stock. Still more often their influence is exerted merely as financial advisers. Often they nominate the president of a railroad or manufacturing company as Morgan & Co. nominated the president of the Atlas Portland Cement Company. Often the bankers take no part in the direction of companies until these companies have shown incapacity or have had for any reason, business or governmental, to be reorganised, either in form or management. Recent cases which come under one or the other of these heads are the Wabash Railroad, the United States Motors Co., the Westinghouse Electric & Manufacturing Company, the International Paper Company, the American Tobacco Company and the American Sugar Refining Company.
HARMONY THE WATCHWORD
There is little evidence to show any actual agreement or even arrangement among the great financial groups. Through interlocking directors and the wide following of smaller firms which each of the big groups has, the whole big banking situation in New York is closely knit together. There is a carefully fostered community of interest even among hostile groups, each group having a director or two, like a financial ambassador, in the other banks.[229] In the past there has been keen rivalry. Historically the Morgan and First National Bank groups have long been close, and two members of the Morgan firm were taken from the First National Bank. At one time these two groups bitterly fought the other two powerful groups—the Kuhn, Loeb-National City Bank interests. But in recent years harmony has prevailed....
It must be remembered that the four banking groups are now managed for the most part by young men. These young men are more accustomed to the ways of conciliation than were the late E. H. Harriman, and John D. Rockefeller and J. P. Morgan. The younger men trouble themselves little with the former conflicts of Morgan, Hill, Rockefeller, Schiff, Stillman, Harriman, and Ryan. They have forgotten even the accusations and charges which the life insurance scandals made public. Their aim is more impersonal—it is to "develop business," and the surest way to do that is by working harmoniously together.